Beware high fees on cheap mortgages

08 August 2008 / by None

As a number of mortgage lenders announce reductions in the interest rate they charge on some of their products, Moneyfacts.co.uk is urging homeowners to check the other costs involved which don't make the headlines.

Many people are attracted by the lower rates that are making the news, as lenders such as RBS, Natwest and Abbey have cut their rates in recent weeks, but they should beware mortgages with low rates that could be charging higher fees to make up for it.

"The average rate on a two-year fixed rate mortgage has dropped from 7.08 per cent at its peak on 11 July to 6.90 per cent today, but typically there is a sting in the tail." said Darren Cook, mortgage expert at Moneyfacts.co.uk comments.

"During the last month the average fee has increased by nearly £100, meaning that borrowers have not benefitted as much from a reduction as expected."

Moneyfacts has calculated that on a £150,000 repayment mortgage, a £100 increase in fee equates to an additional 0.06 per cent in the interest rate. The customer will therefore only benefit from a real reduction of 0.09 per cent on the average rate as opposed to the full 0.15 per cent, which might not make it seem such a good deal.

Research from Moneyfacts has shown that while some lenders are dropping rates and rising fees, there are also those that raised them along with the rest, but have not brought either back down again, and some have stopped charging a fee altogether but have made this up with a higher interest rate.

However, Mr Cook had good news too: "On a positive note, swap rates have continued to fall and are now at their lowest level since 13 April. Predictions are that we should see further decreases in fixed rates from high street lenders before too long." he said.

"It is imperative that anyone looking for a new mortgage deal makes sure they consider the true cost of the deal and not just look at the headline rate being offered."